Do Buyers Need a Home Warranty? A Complete Guide

Buying a home requires lots of research and a leap of faith. A home warranty is a popular way for home buyers to minimize their financial risk during the first year of ownership. A home warranty was included in 1.4 million of the 5.6 million homes sold in 2020, according to estimates from Frontdoor, one of the largest plan providers in the U.S.

Simply put, a home warranty for buyers can help protect a home investment. But before we dig into the financial nuts and bolts around a home warranty as part of home sale, here are some warranty basics.

What Is a Home Warranty?

A home warranty is a service contract that is purchased from a third-party company, often as part of a real estate transaction. A warranty service contract provides coverage for specific items in your home for a determined length of time, with a one-year term being the most common. 

What Does a Home Warranty Cover?

Not to be confused with a homeowner’s insurance policy, a home buyer’s warranty offers protection against normal wear and tear for a home’s systems. Electrical, plumbing, and HVAC are typically covered, depending on the carrier, as well as certain major appliances.

Many home warranty providers offer a few different plans that vary by the amount of coverage and cost — a home systems plan, an appliance-only plan, and a plan that combines the two. 

What Are the Benefits of a Home Warranty When Buying a House?

A home buyer’s warranty is a common and popular addition to a home purchase contract. It provides added peace of mind and potential cost savings during the first year of homeownership, several of which are detailed below.

Fewer Out-of-Pocket Repair Costs

Even if your home’s systems passed inspection at the time of sale, there is no guarantee of how long they will last. If something malfunctions or stops working after you move in, it is on you to foot the bill. And repairs can get expensive quickly. For example, fixing a broken central air conditioning will set you back $100 to $650 on average. If the unit cannot be repaired, prepare to pay $3,500 to $7,600 for a full replacement. 

If you have spent most of your savings on a down payment and closing costs, you may not have much left over for emergency repairs. A home warranty reduces your financial risk during those first few months as you are settling into your new home. 

Ideal for the DIY Averse

For first-time home buyers who may not be familiar with the ins and outs of a home’s systems, a warranty can be a great option. A warranty is also a nice-to-have for homeowners who might not be handy or experienced with DIY projects. A home warranty ensures certain repairs are performed by a quality and vetted professional who is an expert in their field. 

Lets You Focus on the Fun Stuff

Finally, a home warranty provides peace of mind, freeing you up mentally and financially for the more enjoyable parts of owning a home — furnishing, decorating, and making it yours. 

What Are the Disadvantages of a Home Warranty?

If the seller pays for the warranty plan as part of the home sale (more on who pays for a home warranty in a minute), the advantages tend to outweigh any drawbacks. But using a home warranty service does come with a few caveats. 

Lack of Choice

When the seller covers the home warranty cost, they select the warranty company and plan. And upon filing a claim, the choice of service technician is up to the home warranty company. The company also reserves the right to select the unit make and model should you require a part or appliance replacement. If you have a contractor preference or desire a specific manufacturer or brand, you may be disappointed with the service. 

Coverage Misunderstandings Are Common

A home warranty offers protection against normal wear and tear on major home systems, but 

there is a lot it does not cover. This leads to some homeowner misunderstandings of coverage and frustration with a denied claim. 

Read the fine print on the contract to understand exactly what is covered, paying close attention to coverage payouts, or the maximum amount of money the warranty company will pay for a repair or replacement. 

May Increase Your Monthly Housing Costs

If you end up paying for the warranty premium, it may feel like another expense that adds to your monthly housing costs. And if you end up not needing warranty service, it may feel like a waste of money.

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Who Pays for the Home Warranty in a Home Sale?

The short answer: it depends. In a balanced or buyer’s real estate market, a seller will often offer to pay for a home warranty to sweeten the deal and close the sale. 

In a competitive (seller’s) market, buyers are usually more careful requesting anything from sellers that could make their offer less competitive — this includes a home warranty and other concessions. 

Bottom line: If a home warranty is on the table during your transaction, work with your agent to make sure it is included in the contract. 

How Much Does a Home Warranty Cost?

If the seller is paying for it, great news — a home warranty plan costs you nothing upfront. But if a home warranty is not included in your home sale agreement, not to worry. Anyone can purchase a home warranty at any time. If you end up warranty plan shopping, here is the typical warranty cost breakdown.

Home Warranty

A home warranty for buyer's can reduce out-of-pocket expenses during the first year of home ownership.

• Covers wear and tear of major systems

• Seller will sometimes cover the cost

• Helps minimize risk

• Be aware the home warranty company chooses your service provider

Average Costs per sq. ft:

$264 - $840

Home warranty policy: This is the total cost of the warranty premium and is the portion that a home seller may cover as part of a purchase contract. One-year terms are the most common, and there is usually the option to pay monthly or in one lump sum.

Average annual home warranty policy cost range: $264 to $840

Warranty service fee: This is your deductible, the amount you pay each time you submit a warranty claim. 

Average service fee cost: $70

Costs for plan additions like a pool, spa, septic system, or a smart home system vary by provider.

How Much Money Can a Home Warranty Save You?

Home repairs in the first year of ownership are common — 77% of buyers had to make at least one during the first year of purchasing a home in 2020. And of those homeowners, 53% spent between $1,000 and $5,000. 

Considering the highest average cost of home warranty policy is $840 with a $125 service fee, you could save some money by purchasing a plan. And if the seller assumes the cost of the premium, all the better — the service fee is your only out-of-pocket expense. 

Research Home Warranty Providers

A home warranty can reduce your home repair costs and offer additional peace of mind during a home sale. When evaluating warranty plans, consider the age of your home and how much money you can set aside for emergency repairs. Check out Modernize’s guide to some of the best warranty plans to determine the right one for your home.